According to the Delhi High Court, Section 2(31) of the 2013 Companies Act and the 2014 Companies (Acceptance of Deposits) Rules cannot be applied retroactively.
According to a ruling by Justice Chandra Dhari Singh's single-judge panel, the Companies Act of 1956 and the Rules of 1975 would govern any problems relating to a share purchase transaction that surfaced in 2010.
The Petitioner paid the Directors of the Respondent Company Rs. 40,00,000/- for the issuing of shares in the said company, to sum up the case's circumstances. The Respondent gave the Petitioners their money back after failing to distribute the shares as promised. According to Rule 17 of the Companies (Acceptance of Deposits) Rules, 2014, which levies a penalty interest of 18 percent annually on the deposits accepted by a private firm from the public, it is alleged that the Respondent Company failed to refund the interest earned on the sum in issue.
The Petitioner then made contact with the Registrar of Companies by submitting an online complaint regarding a violation of the Rules and a request for the return of the Interest amount. The petitioner claimed that the Respondent Company failed to act on the petitioner's complaint despite the Show Cause Notice being issued.
In the instant case titled Nitin Rekhan v. Union of India and Ors., the issue raised for clarification before the High Court was:
Whether the amount in question is subject to the Companies Act of 2013 and the Companies (Acceptance of Deposit) Rules of 2014?
Whether the disputed sum qualifies as a "deposit"?
With regard to the first issue, In this case, the court held that the definition of "deposit" in Section 2(31) of the Companies Act, 2013, which took effect on April 1, 2014, could not be applied retroactively to the share-purchase agreement between the Company and Petitioner, which was signed between the parties in 2010. Rules from 2014 could not be applied to the sum in question for the same reason.
As a result, it was decided that the Act of 1956 and the Rules of 1975 applied in this particular case.
With regard to the second issue, in light of this, the court ruled that the share application money provided by the petitioner for the distribution of shares could not be recognised as "deposits" in accordance with Rule 2(b)(vii) of the 1975 Rules read with the General Circular of 2015. As a result, the court determined that the issue of whether or not penal interest is applicable did not exist.
As a result, the court dismissed the petition after finding no compelling justifications to consider it.
The Court categorically stated that,
"It is pertinent to note that the provisions of Companies Act 2013 did not come into force on a single date, rather they have come into operation in phases. In the first phase, the Ministry of Corporate Affairs vide its notification dated 12th September 2013 notified 12th September 2013 as the date on which certain provisions of the Companies Act, 2013 would come into force. It was followed up by a notification dated 27th February 2014, notifying Section 135 of the Companies Act, 2013 and Schedule VII, to be effective from 1st April 2014. Subsequently, in the third phase, by notification dated 26th March 2014, the Ministry notified 1st April 2014 as the date on which certain provisions and all remaining schedules of the Companies Act, 2013 would come into force".